A provocative, unsponsored assessment of current and future legal, regulatory, marketplace, and cultural issues affecting telecommunications and information policy presented by Rob Frieden, Pioneers Chair and Professor of Telecommunications and Law, Penn State University

Monday, February 24, 2014

Notwithstanding
Comcast’s open Internet access commitment made to close the NBC-Universal
acquisition, the company has executed a preferential access deal with
Netflix.For me the primary question is what
kind of discrimination does “better than best efforts” routing constitute?

At the risk
of giving an inch so Comcast can take a mile, I consider paid peering a
reasonable quality of service discrimination with several caveats.First the possibility exists that payments
flowing directly from Netflix to Comcast are largely offset by reductions in
the direct payments the company makes to Content Distribution Networks like
Level 3 and Cogent.Netflix and its
customers benefit from higher quality of service with fewer intermediary
carriers and routers.

Of course no one knows, because the
parties execute nondisclosure agreements and the FCC has not thought to require
disclosure.Perhaps with its new found
emphasis on transparency the FCC will demand disclosure of all “special routing
arrangements” complete with redacted public release of the agreements.

More direct traffic routing probably
accords Comcast greater leverage upstream with Netflix and similarly situated
content providers.Without adequate
oversight nothing prevents Comcast from making paid peering—and the surcharge
it incorporates—standard operating procedure.In other word little remains of plain vanilla “best efforts” routing:
Comcast can demand similar payments from other content providers and
distributors backed up by a not so veiled threat that it simply will not have
adequate downstream delivery capacity to accommodate even what it previously
was able to handle.

Such contrived congestion forces
almost every upstream venture, with the financial resources available, onto
some type of premium service provisioning.In other words there probably will be a rush to “Most Favored Nation”
quality of service making it the default standard, even though ISPs previously
accommodated increasing network demand without upstream carrier surcharges. Retail ISPs either absorbed the cost of
upgrades as a cost of doing business, or they raised retail rates.Now they can do both.Just last week AT&T announced significant
increases in retail broadband access rates.

Perhaps other content providers,
generating less traffic, can continue to squeeze by with standard best efforts
routing.But why would a competitor of
Netflix risk the consequences knowing that ISPs like Comcast can throttle,
degrade and create artificial congestion without FCC sanction.Bear in mind that retail ISPs can create
bitstream delivery problems without their broadband subscribers knowing
the cause and the responsible party.

Consumers can complain all they
want about a reduced value proposition from their $30-75 monthly subscription
payments, but competitive carriers are scarce and unlikely to refrain from such
higher rent extraction options themselves.

Netflix must have decided that the
sooner it can lay to rest the risk of artificial or real downstream congestion
the better.It also must have considered
a near term solution as according it the cheapest option, knowing that going
forward Netflix competitors also will have to pay perhaps on less generous
terms.So Netflix secures a competitive
advantage even as retail ISPs extract more revenues.

1 comment:

Kelly Cameron
said...

I imagine Netflix also saw this as an opportune time to make a deal with Comcast, which will portray this as a big win for consumers in hopes of smoothing the way for approval of the Time Warner deal. Obviously, I can only speculate, but Netflix may have gotten fairly attractive terms from Comcast (and of course won't have to pay people like Level 3). Of course, if the FCC just decided that these guys are really common carriers after all, we could address some of these issues the old-fashioned way.

About Me

Rob Frieden serves as Pioneers Chair and Professor of Telecommunications and Law at Penn State University.He also provides legal, management and market forecasting consultancy services and has written four books, most recently Winning the Silicon Sweepstakes: Can the United States Compete in Global Telecommunications published by Yale University Press. Rob has written over one hundred articles in law reviews and telecommunications policy journals and has provided commentary in a variety of trade periodicals. He updates a major communications treatise: All About Cable and Broadband (Law Journal Press).

Rob has held senior policy making positions in international telecommunications at the United States Federal Communications Commission and the National Telecommunications and Information Administration.In the private sector, he practiced law in Washington, D.C., and served as Assistant General Counsel at PTAT System, Inc. where he handled corporate, transactional and regulatory issues for the nation's first private undersea fiber optic cable company. Professor Frieden holds a B.A., with distinction, from the University of Pennsylvania (1977) and a J.D. from the University of Virginia (1980).